Swiss Back Up Banks With Aid, Guarantees
Government to Own Stake in Giant UBS
Friday, October 17, 2008; 1:32 AM
BERLIN, Oct. 16 -- After insisting for weeks that its world-famous financial system was holding strong in the global financial storm, Switzerland on Thursday became the latest country to announce extraordinary, multibillion-dollar plans to shore up its banks.
UBS, the country's biggest, is transferring $60 billion in toxic debt to a new fund overseen by the Swiss central bank. The government is also investing $5.3 billion to take a 9.3 percent ownership interest in the bank.
At the same time, the second-ranking bank, Credit Suisse, declined to accept government help but said it plans to raise $8.8 billion from private global investors, including the government of the Persian Gulf state Qatar.
The Swiss government also announced that it was raising the guarantee on bank deposits and backing short- and medium-term loans between banks, matching similar moves in other European countries.
Banking has figured prominently in Switzerland's economy for generations, drawing deposits from all over the world because of the country's reputation for stability, confidentiality and political neutrality. Some of the banks have grown so big that they outrank the national economy.
The health of UBS, whose global assets now ring up at four times the size of Switzerland's gross domestic product, had become a growing preoccupation in the nation of 7.5 million people since last year, when it began reporting debt problems. Many customers had been withdrawing their money and UBS stock prices had plunged.
Hit hard by the subprime lending crisis in the United States, UBS has written off $47 billion in investments since last year and raised $25 billion in new capital. It recently announced that it was cutting 2,000 investment banking jobs, the latest in a series of staff reductions.
Jean-Pierre Roth, president of the Swiss central bank, said in a statement that "a better functioning of the financial markets is essential." The decision was made to go ahead with "this operation now, in an orderly fashion -- despite the fact that the markets have regained a certain degree of optimism in the past few days -- rather than at a later point under potentially more adverse conditions."
UBS chief executive Marcel Rohner said the move "gives comfort to UBS's future."
The Swiss National Bank, the central bank, will oversee the new fund for toxic debt, much of it linked to U.S. mortgages. UBS will provide $6 billion in equity for the fund, and the central bank will provide a $54 billion loan to it, channeled from U.S. Federal Reserve funds.
David Buik of London brokerage firm BGC Partners applauded the Swiss moves and predicted that the small country "would be back on its feet quicker than most."
To ward off surprise announcements that would add even more volatility to the markets, European leaders have said they are now consulting with and briefing one another closely concerning financial steps.
A spokesman for British Prime Minister Gordon Brown in London said that there have been a "number of conversations" with other European leaders about the health of their financial systems but that "we're not going to talk about specific banks." He said the British Treasury has been "talking to most of our European partners, including the Swiss."
Gerhard Schwarz, business editor of the Swiss newspaper Neue Zuercher Zeitung, wrote Thursday that the bailout package's size is "sensational compared to the size of Switzerland," adding: "It is -- relatively speaking -- much more than $700 billion . . . in the United States."
Schwarz wrote that UBS officials, as well as government officials who must have been aware of the bank's problems, have been issuing optimistic statements and "deceiving the public by saying Switzerland is effectively an island of saints in a tempest."
Special correspondents Shannon Smiley in Berlin and Karla Adam in London contributed to this report.